Carvana Says Purchase of Auction Company, Facilities Will Expand Next-Day Delivery Capability

Next-day delivery will be available to more of the customers who buy a used car from automotive retailer Carvana.

With its newly announced acquisition of the nation’s second-largest used vehicle auction company and its 56 sites in the U.S., Carvana will have facilities within 50 miles of 58% of the country’s population — up from the current 16%.

During the automotive retailer’s fourth-quarter earnings call Thursday (Feb. 24), company executives said the acquisition of ADESA U.S., which was announced the same day, will enable Carvana to speed deliveries of cars to customers.

“This will reduce shipping times to our customers nationwide and lays the foundation for eventually offering same-day delivery to many of our customers,” Carvana CEO Earnie Garcia said during the call.

The company’s loss in the period widened to $182 million, compared with a loss of $145 million a year ago, on revenue of $3.75 billion. For the full year, the company lost $287, an improvement over its year-ago loss of $462 million.

Benefiting From Proximity to Customers 

In a presentation that was released to accompany the call, Carvana said the shorter delivery distances will allow same-day and next-day delivery to more customers, lower the risk of delivery delays and provide a better customer experience that will lead to a higher Net Promoter Score (NPS).

It will also enable cost savings. This will allow increased customer conversion rates, lower customer acquisition expense, faster inventory turn times, lower inbound transport and logistics costs, and lower shipping costs to customers.

“For perspective of how powerful proximity can be, sales that are delivered to customers from an inspection center within 200 miles of our customers today have unit economics that are about $750 better than our average transaction,” Garcia said during the call.

Tripling Capacity to Inspect, Recondition Used Cars 

Carvana, which enables customers to buy used cars without leaving their device and then have the car delivered as soon as the next day in select markets, will also benefit from the acquisition in other ways, Garcia said.

Adding ADESA U.S.’s nationwide inspection network will also increase Carvana’s vehicle production capacity — its capacity to inspect and recondition used cars — by 2 million units per year when fully built out. With total capacity expected to be more than 3 million units, that will more than triple its current capacity of 880,000 units.

In addition, acquiring the auction company — which completes 1 million auction transactions a year — will also boost Carvana’s auction capabilities.

“We look forward to working with our new customers, to creatively finding new and interesting ways to work together and to valuing them in the same way we have always valued all of our customers,” Garcia said.

Coping With Driver Shortage 

Like the rest of the automotive industry, Carvana has been impacted by the pandemic and its effects on employees, production and logistics. Garcia said during the call that the company experienced high call-out rates from drivers during the latest wave of the pandemic.

“When you look at the remainder of this year, I think the primary driver right now is our logistics network, which is much more constrained than any other part of the business,” Garcia said. “I think from there, it’s about catching up and then it’s about figuring out where we are for the remainder of the year.”